Criticism trail NNPC refineries’ performance amid PMS shortage 

Stakeholders in the oil and gas industry have raised concerns over the inability of the Nigerian National Petroleum Company Limited (NNPCL) to bring on-stream the nation’s 445,000 per barrel day refineries amidst challenges of petroleum product supply in the country.

They are also disturbed by the impact of the inefficiencies of the oil industry on inflation and foreign exchange, which is dragging the country’s economic potential.

Awarded for about $3 billion, Nigeria’s Port-Harcourt, Warri and Kaduna refineries have been in repair since 2021. Several deadlines set for the resumption of the projects have been elusive.

While the NNPC already advertised tender for the management of the refineries giving hope that the facilities are on the verge of completion, stakeholders are worried over the debt profile of the assets.

In its 2023 financial statement, NNPC revealed that the country’s refineries are indebted to the tune of N4.5 trillion. The Port-Harcourt Refinery currently owes about N1.9 trillion, Kaduna Refinery, N1.3 trillion and Warri Refinery N1.1 trillion. The records of the debt of these assets in the 2022 audited statement showed that Port-Harcourt Refinery had a debt profile of N806 billion; Warri, N597 billion and Kaduna, N487 billion.

The industry players mentioned that despite multiple attempts to rehabilitate the refineries over the years through Turnaround Maintenance (TAM), none of the projects have been fully completed.

The stakeholders stressed that billions of dollars have been spent, yet Nigeria’s four major refineries in Port Harcourt (two), Warri, and Kaduna remain largely non-operational. They argued that NNPC’s lack of capacity to manage these projects efficiently has led to delays and a failure to restore local refining capacity.

They pointed out that deadlines for bringing the refineries back online have been missed repeatedly as promises of full production have come and gone, leaving the country reliant on fuel imports. Stakeholders noted that the inability to meet these deadlines underscored the deeper structural issues within NNPC’s project management and operational framework.

President of the Nigerian Economic Society (NES), Prof. Adeola Adenikinju, said the refineries must be sold outright.

“We should count our losses and get out of the refinery business. Otherwise, it will remain a bottomless pit for Nigeria’s resources,” he said.

Energy Partner at Bloomfield Law Practice, Dr Ayodele Oni, highlighted that the delays in operationalising state-owned refineries stemmed from multiple factors, which include inadequate funding, ineffective governance, vandalism of crude oil supply pipelines, and insufficient maintenance.

Oni stressed the importance of implementing additional measures to ensure the successful operation of state-owned refineries. He noted that the delays have led to several consequences, such as increased reliance on imported petroleum products, shortages resulting in price surges, escalating exchange rates, rising inflation, and other economic challenges.

“Regarding the current rise in fuel prices, I anticipate that this will create a cascading effect on transportation costs, subsequently raising prices for goods and services nationwide. It is essential to establish strategies to mitigate the impact of this fuel price increase. Suggested measures include introducing Compressed Natural Gas (CNG) buses to alleviate fuel demand, enhancing investments in renewable energy sources, and providing incentives to lower transportation fares, among others,” he suggested.

However, stakeholders highlighted that NNPC’s inefficiency in converting crude into refined products like PMS has remained a significant problem as this failure has forced the country to rely on imported fuel, exacerbating price volatility, fuel scarcity, and inflation, while also putting pressure on foreign exchange reserves.

The failure to revive the refineries represents a missed opportunity for Nigeria to boost its refining sector and achieve self-sufficiency in fuel production. Beyond the immediate benefits of local refining, functioning refineries would create jobs, stimulate the local economy, and reduce the strain on foreign exchange reserves.

Energy Expert, Prof. Dayo Ayoade, pointed out that the failure to operationalise NNPC refineries highlighted the organisation’s lack of capacity to effectively manage its operations. He stressed that completing the ongoing work is crucial to ensure that crude oil can be properly refined into PMS, a product that citizens urgently need across the country.

He added that since the NNPC has been unable to deliver for over a decade, price increases are inevitable. He explained that the cost of PMS is based on international prices, which have risen due to the devaluation of the naira. As a result, the prices at which cargo of PMS are imported into the country are significantly high.

“Whether the government admits it or not, it is paying, whether they call it under-recovery or subsidy or whatever you want to call it, it’s trying to maintain some kind of price balance for the Nigerian consumer. And it is struggling with this because it is finding it difficult to provide the funding.

“The implication is that there will be no quick drop in prices. We understand that Dangote Refinery started producing PMS, but even that will take some time to enter the market, especially to go around the country, logistic issues will come into play, and all of these will take time. I will be surprised if the NNPC refineries are all working by the end of the year. NNPC is under public scrutiny to perform. And if it doesn’t perform, we will see what kind of measures the Federal Government will take against NNPC limited,” he said.